Tuesday, 20 December 2016

Spinning the Scottish Budget: Part III

- Seriously Kev, you're still banging on about this?

- Yes, yes I am.

You see I've invested quite a lot of effort into understanding what’s actually been going on with our Scottish Budget, and in the process it's become clear to me that the Scottish Government have gone out of their way to obscure the reality. So I think it's worth me going out of my way to make that reality clear.

To save me repeating myself: all growth percentages quoted here are real (i.e. inflation adjusted1) and all values are quoted in real 2016-17 terms.
Let’s get one possible source of confusion out of the way first: we’re going to focus here on the devolved Scottish Budget, not Total Managed Expenditure (TME) that’s shown in the Government Expenditure & Revenue Scotland (GERS) Report.

GERS TME is considered to be controversial by some because it includes per-capita allocations of defence, debt interest and foreign affairs as well as allocated costs for other reserved matters like the state pension. The following graph puts the Total Scottish Budget (blue line) in context against the GERS TME spend (black line);

I confess this is not the most exciting graph you'll ever see, but I think it's important to be clear how different the Budget (for which we now know both this year and next) is from the total GERS attributed spend on Scotland (for which we only know up to last year actual)

That black TME line is basically flat. From its peak in 2010-11 its down by 2.3% but since 2008-09 it's grown by 2.3% and last year it grew by 0.6%. But this includes stuff like debt interest and allocated defence costs and other things the Scottish Government doesn't control, so we need to focus instead on the blue Total Scottish Budget line - this is what the budget exercise is all about.

Let's zoom in by changing the y-axis scale (note it now doesn't start at zero) and adding some of the other spending definitions we'll need to understand to follow the various claims being made.

I'm astounded by how hard it has been to pull this together. I'd normally footnote this sort of thing, but to give an idea of the work I've had to do to get comparable cash figures, here's a table showing where I had to go to get like-for-like nominal (cash terms) numbers just for the most recent five years (no highlight means figures were explicit but not shown, yellow is unexplained differences2 and other background colours signify I had to source from different budget reports);

It's almost as if somebody didn't want anybody to be able to follow what's been going on since 2013-14. Anyway, all I had to do then was source the HM Treaury GDP deflator which the Scottish Government uses1 and convert the figures into comparable real terms values.

So let's now look at each of the lines on that graph.

Total Budget - the blue line
The Total Budget was cut over the three years from 2010-11 to
2013-14, but has grown since. That’s right: Scotland’s Total Budget has grown over
the last 3 years and is in fact planned to grow by a further 1.1% in the coming year.

Between 2013-14 and 2017-18 the budget will have grown by 5.4% (remember: all these figures are real, inflation adjusted). For context, that's a £1.9bn increase in Scotland's spending budget over a period when North Sea oil
revenues have declined by £4.0bn.

The Total Budget for 2017-18 is in fact slightly higher than its previous
peak in 2009-10 – so we’re back to pre-austerity spending levels.

You won’t find this mentioned anywhere by the SNP and you’d have to have
made it to Appendix G table 4 on page 169 of the 2017-18 budget report before you'd see this data (which you'd have to adjust for inflation, as I have done).

Total Departmental Expenditure Limits (DEL) - the red line
Total DEL differs from the Total Budget because it doesn’t include
Annually Managed Expenditure (AME). You’d need to
make it to page 165 of the 2017-18 budget report to find just two years worth of AME data where you'd discover that for example in in 2016-17 it was £6.7bn,. The Glossary explains that AME is;

"spending that does not fall within Departmental Expenditure Limits (DEL). AME is generally less predictable than expenditure in DEL and is not subject to multi-year limits. It is set each year and contains those elements of expenditure that are not readily predictable. For example, NHS and Teachers’ pensions count as AME"

Now here I confess the limits of my tenacity and stamina were reached.
Each year's budget only include two years of AME data and the
information for DEL in these budgets only goes back as far as 2010-11. So I
merely observe that (by implication) AME has grown faster than DEL over the
graph period (i.e. the blue and red lines diverge slightly)

If you think only DEL matters and we should ignore AME, good luck explaining your logic to a Scottish teacher or
a nurse whose pension is paid by it.

But even if we do look just at DEL, it’s still grown by 3.1% since 2014-15.

Discretionary Spending Limit - the grey then gold line
I've called this "Discretionary Spending Limit" as it's the last total in table 1.02 which has this title - but that row is rather cumbersomely named "SG Adjusted Spending Limits" in the table itself.

To get from DEL to this “Discretionary Spending Limit” we need to subtract both “non-cash DEL” and “financial transactions”. Stick
with me, we’re nearly there.

"Non-cash DEL” is basically depreciation, a figure
that needs to be accounted for but is a “given” as far as planning the budget
is concerned. It is (annoying inconsistently) described in the Budget Glossary as "Ringfenced Resource DEL (non-cash)":

"depreciation or impairment costs associated with the ownership of assets. HM Treasury rules mean that this element of the overall DEL budget cannot be used to fund pay or procurement costs and as such this budget does not represent spending power for the Scottish Government."

I'm not sure if that second sentence makes grammatical let alone logical sense - depreciation costs aren't cash, so it's hardly because of "HM Treasury Rules" that they can't be used to "fund pay or procurement costs" (answers on a postcard).

I'm tired and confess I’ve not really got my head around “financial
transactions”. It seems clear to me that this is real money,
albeit effectively in the form of borrowing for restricted use. The
definition offered is

"Financial Transactions are allocated by HM Treasury to the Scottish Government and can
only be used for the provision of loans or equity investment beyond the public sector.
Financial Transactions facilities have to be repaid to HMT in future years."

We'll talk more about borrowing in a moment - but just because it's borrowing doesn't mean it doesn't count when it comes to money available to spend in the Scottish budget.

So we're now looking at a
sub-set of the Total Budget that excludes loads of highly relevant figures - and this is basically flat over the last five years (actually +0.2%).

"Fiscal Revenue + Capital
DEL" - the grey line
Prior to 2015-16 this was the same as the Discretionary Spending Limit, but as it doesn’t include
Scotland’s devolved capital borrowing it's a pretty meaningless figure from
2015-16 onward.

I can't emphasise this point enough - to consider our spending
capacity without considering the money we can borrow directly (as opposed to
Westminster borrowing it on our behalf) is simply ridiculous.

The 2016-17
budget presented this figure as an emboldened total called "SG Spending Limits" and showed its growth relative to 2010-11 (when of course there was no devolved capital borrowing power). This is repeated in the 2017-18 budget when it is shown again as an emboldened total with growth figures in the "Discretionary Spending Limits" Table, just named "Total":

This is hugely misleading, it's a ridiculous figure to draw people's attention to. At least in this year (unlike last year) an "SG Adjusted Spending Limit" total is included below which at least does include Capital Borrowing but - as you will now understand - still excludes a lot of spending that is essential to the Scottish budget.

.
****

As explained in my previous blog the forecasts beyond the budget year in question are frankly a distraction and of marginal value at best.

So there you have it. Faced with a budget that's rising in real-terms and is now back to it's pre-austerity peak level, the SNP managed to come up with this summary:

"The UK Government’s approach to public spending is having a significant detrimental effect in Scotland. Between 2010-11 and 2019-20, the Scottish Government’s Fiscal Departmental Expenditure Limit (DEL) from HM Treasury will fall by over nine per cent in real terms – the equivalent of over £2.8 billion"

So that's taking a figure from the peak forward to a pretty meaningless forecast and - outrageously - that 9.2% means they're using the "Fiscal Revenue and Capital DEL" (aka Fiscal DEL) that excludes the impact of Capital Borrowing.

2. The figures in this table show that (sourced from within the same budget report) the Total Budget does not equal DEL + AME as we would expect. But then taking the 2017-18 budget as an example, the Total DEL figures on page 168 do not tie to the figures in the up-front summary either (a £217m difference for 2016-17 year) so frankly I start to give up.

7 comments:

As the old saying goes - "Lies, damn lies and statistics"! In this case, it appears that the statistics are being manipulated by the SG, in an effort to show them as being under the jackboot of the WM nazis!!

Why should it matter were the money comes from it is still spent in Scotland direct or indirect , this is just another way that allows the SNP to obfuscate the issue , the Andrew Neil Angus Robertson TV interview and Mr Neil's subsequent schooling of Wings on twitter makes the argument clear :

Excellent work, Kevin. It is absolutely outrageous that a concerned private citizen has to do this. This demonstrates that the civil service is rotten to the core, and that whichever party gets in next will have to have a mass clearout (a la Ronald Reagan with the air traffic controllers) in order to eradicate the nationalism which has clearly diseased the government machine. Of course, this will result in a few weeks of paralysis of public services, but it is a price that will have to be paid if trust is going to be restored in government.

Studied Economics at Uni but still had to go through it twice, now no longer as clear as Mud. However, the Qs is how do you put this across to the Scottish Voter to convince them that they have & will continue to be conned by Bute House ?. An Excellent piece of Research by you. Wheel done. Good luck in putting this across,.

You tenacity in working through the figures has to be admired. 2 points I would like to make.

1. Why is a member of the public having to do this analysis.? Where are all the "smart' people from the other political parties.

2. The narrative should be..... The SG are willing to let the people who reside in Scotland suffer, just so they can achieve their dream, irrespective of the hardship this brings. This has nothing to do with improving Scotland. It's so they can get what they want, come hell or high water.It's the hypocrisy of it all, which disappoints me the most.

Thank you, Kevin for all you brilliant economic analysis.( And thank your family, employees and shareholders as well - this valuable work can only come at some cost to family life and the day job?!).Kevin's latest post is required reading for all Scottish politicians and journalists - but particularly Derek Mackay - who should thank his lucky stars that Scotland is still part of the Union and not drowning in self inflicted economic misery.The SNP really must stop their gurning - so predictable and so dull!( Incidentally, it's partly thanks to Kevin's work that slowly but surely the SNP are being found out. What goes up must come down; Nicola dear, make sure you have a parachute - you'll need it! )